Beauty may be in the eye of the beholder, but is value?

Charitable contribution deductions remain a primary target of IRS enforcement efforts, especially where the property donated lacks a readily ascertainable value. While substantiating the fair market value (FMV) of contributions of cash and property that can be easily valued (e.g., publicly traded stock) is relatively straightforward, contributions of items such as art and collectibles frequently result in disputes with the IRS over the value of the charitable deduction.

Worse still, the disallowance of deductions can result in harsh taxpayer penalties, including a 20% penalty for substantial valuation misstatements (Sec. 6662(b)(3)) and a 40% penalty for gross valuation misstatements (Sec. 6662(h)(1)). A substantial valuation misstatement occurs when the value of a deduction claimed on a tax return is 150% or more of the item’s actual value (Sec. 6662(e)(1)(A)). The penalty may be waived if the taxpayer had reasonable cause for the misstatement. A gross valuation misstatement occurs when the value of a deduction claimed on a tax return is 200% or more of the item’s actual value (Sec. 6662(h)(2)(A)(i)). The reasonable–cause exception does not apply to gross valuation misstatement penalties (Sec. 6664(c)(3)).

Because the valuation of noncash charitable contributions can be subjective, the IRS frequently looks to challenge deductions based on technical foot–faults — an easier argument to prove than the value of the contribution itself. A thorough understanding of the substantiation requirements for noncash charitable contributions can help protect valuable deductions from easy IRS challenges and avoid costly penalties and defense costs.

Noncash charitable contribution substantiation requirements

Sec. 170 allows a deduction for contributions to qualified charitable organizations, subject to certain limitations. The amount of the deduction is generally the FMV of the contributed property at the time of the contribution (Regs. Sec. 1.170A–1(c)(1)). FMV is generally defined as “the price that property would sell for on the open market … that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts” (IRS Publication 561, Determining the Value of Donated Property (rev. December 2025), p. 2).

Substantiation requirements vary based on the claimed value of the property contributed, with the substantiation requirements for each valuation tier building upon the requirements of all lower tiers. Thus, property that falls within a higher valuation tier must generally satisfy all requirements applicable to the lower tiers, as well as the additional requirements specific to its own tier (see Regs. Sec. 1.170A–16). Note that, for the purposes of the following tiers, similar items must be grouped together. For example, if a donor made a contribution to a museum of 50 sketches worth $150 each, that donation would be treated as a single donation with an FMV of $7,500, not 50 donations of $150 (Sec. 170(f)(11)(F)).

Tier 1: Property valued at $250 or more requires a contemporaneous written acknowledgment (CWA) from the donee containing: (1) a description of the property; (2) a statement of whether the donee provided any goods or services in return for the contribution and, if so, a description and good–faith estimate of the value of the provided goods or services; and (3) if the donee provided any intangible religious benefits, a statement indicating such (Regs. Secs. 1.170A–16(b) and 1.170A–13(f)(2)). A written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the tax return for the year in which the contribution was made or the due date for filing the taxpayer’s tax return for that year (Regs. Sec. 1.170A–13(f)(3)).

Tier 2: In addition to the CWA described above, a donation of property valued at more than $500 requires the filing of Form 8283, Noncash Charitable Contributions, with the taxpayer’s return (see Regs. Sec. 1.170A–16(c)(2); IRS Publication 561, p. 9). The form generally requires the donor to list the name and address of the donee organization; the date of the contribution; a description of the donated property; its FMV and the method used to determine the FMV; and information regarding the donor’s acquisition of and adjusted basis in the property (Regs. Sec. 1.170A–13(b)(3)).

Tier 3: In addition to the above, a donation of property valued at over $5,000 requires the donor to obtain a qualified appraisal of the property, along with providing additional details regarding the contributed property on Form 8283 (Regs. Sec. 1.170A–13(c)(2); IRS Publication 561, p. 10). The requirements of a qualified appraisal are detailed in the next section of this column.

Tier 4: In addition to the above, a donation of property valued at over $500,000 requires a qualified appraisal to be attached to the donor’s return (IRS Publication 561, p. 10).

Note that numerous additional requirements and exceptions apply to particular types of property. For example, donations of art valued at just $20,000 or more require that the appraisal be attached to the donor’s return and include a color photograph of reasonable size and quality to show the art (IRS Publication 561, p. 4). Other requirements apply to donations of clothing and other household items, vehicles, conservation easements, and partial interests in property, among others. Accordingly, it is critically important to check the specific reporting requirements whenever a taxpayer makes a noncash charitable contribution.

Qualified appraisal

The absence of a qualified appraisal, when required, can put a taxpayer’s entire noncash charitable contribution deduction at risk of disallowance. Under the relevant provision of the Internal Revenue Code, “no deduction shall be allowed … for any contribution of property for which a deduction of more than $500 is claimed unless” the taxpayer properly completes all required parts of Form 8283 and, when necessary, obtains and/or attaches a qualified appraisal to their return (Sec. 170(f)(11)(A)(i)). There are limited exceptions to this rule, one of which played out in the case discussed later in this column.

The first requirement for a qualified appraisal is that it be prepared by a qualified appraiser, i.e., an independent individual with formal appraisal training and experience who regularly performs appraisals for compensation (Sec. 170(f)(11)(E); Regs. Sec. 1.170A–13(c)(5)(iv)). “Independent” in this context means the individual is not: (1) the donor; (2) the donee; (3) a party to the transaction in which the donor acquired the property at issue; (4) an individual employed by or related to any of the above parties; or (5) an appraiser regularly used by the donor, donee, or a party to the transaction in which the property being appraised was acquired (Regs. Sec. 1.170A–13(c)(5)(iv)).

A qualified appraisal must be prepared in accordance with the Uniform Standards of Professional Appraisal Practice, signed and dated by the appraiser (Regs. Secs. 1.170A–13(c)(3)(i)(B) and 1.170A–17(a)). Generally, the appraisal should be signed and dated no earlier than 60 days before the date of the contribution or no later than the due date, including extensions, of the return on which the deduction for the contribution is first claimed (Regs. Sec. 1.170A–17(a)(4)). If the appraisal is dated before the contribution was made, the valuation effective date must be no earlier than 60 days before the contribution date and no later than the date the contribution was made. If the appraisal is dated on or after the date the contribution was made, the valuation effective date must be the date of the contribution (Regs. Sec. 1.170A–17(a)(5)(ii)). The fee charged for the appraisal may not be based on the appraised value of the property (Regs. Sec. 1.170A–17(a)(9)).

When evaluating an appraisal for completeness, a checklist of items can be helpful. To be considered a “qualified appraisal,” an appraisal must include, at the minimum:

• A detailed description of the property.
  • If the property is art, the description should include:
    • Dimensions, subject matter, medium, and name of the artist (or its originating culture);
    • Cost, date, and manner of acquisition;
    • History of prior ownership;
    • Exhibition history;
    • Authenticity documentation; and
    • A professional-quality color image of the art.
• The condition of the property.
  • If art, this should include a condition report by a professional conservator, if condition affects value.
• Terms of any agreement entered into by the donor or donee relating to the property contributed.
• The FMV of the property as of the valuation effective date.
• The valuation method used by the appraiser.
• The basis of the valuation, which may include identification and analysis of the item’s value, characteristics, comparable-sales data, and/or the economic state of the relevant market.
• The appraiser’s name, address, and taxpayer identification number (TIN).
• If the appraiser is acting in the capacity of a partner in a partnership, an employee, or an independent contractor engaged by any person other than the donor, the name, address, and TIN of the partnership or employer.
• The appraiser’s qualifications to value the type of property being valued, including education and experience.
  • An individual is not a qualified appraiser with respect to a particular contribution if the donor had knowledge of information that would cause a reasonable person to expect the appraiser to falsely overstate the value of the contribution (Regs. Sec. 1.170A-13(c)(5)(ii)).
• A statement that the appraisal was prepared for income tax purposes.
• The date, or expected date, of the contribution.
• The valuation effective date.
• The date of the appraisal.
• The signature of the appraiser and the date the appraisal was signed by the appraiser.
• A signed declaration from the appraiser that states: “I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if there is a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund that is based on my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been at any time in the three-year period ending on the date of the appraisal barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. 330(c).”

(Regs. Secs. 1.170A–13(c)(3) and 1.170A–17(a)(3); IRS Publication 561, p. 11).

While the required declaration from the appraiser may seem severe, it serves to remind both the appraiser and the taxpayer that strict adherence to the substantiation and valuation requirements for noncash charitable contributions is the best way for donors to ensure that their contribution is fully credited for tax purposes.

WT Art Partnership LP

The stringency of the substantiation requirements for noncash charitable contributions was recently illustrated in a 2025 Tax Court opinion, WT Art Partnership LP, T.C. Memo. 2025–30. The case involved a partnership that donated paintings with a claimed FMV of $73 million. Following an audit, the IRS denied in full the taxpayer’s charitable contribution deductions related to the paintings. The taxpayer petitioned the Tax Court for a redetermination.

In 1997, Oscar Liu–Chen Tang, a prominent businessman, acquired 12 ancient Chinese paintings through WT Art Partnership LP from an art collector for $5 million. Tang executed a deed of promised gift to the Metropolitan Museum of Art in New York City (the Met) for 11 of the 12 paintings but planned to keep them in the partnership for some time because he expected that they would appreciate in value. Between 2010 and 2012, Tang, through WT Art, donated five of the 12 paintings to the Met, for which he claimed total charitable contribution deductions exceeding $73 million. WT Art attached to its tax return appraisals prepared by China Guardian Auction Co. Ltd., which was then the second–largest art auction house in China. The IRS disallowed the deductions in their entirety on the basis that China Guardian was not a qualified appraiser; therefore, the appraisals were not qualified appraisals.

The primary issues presented to the Tax Court were thus whether the appraisals were qualified appraisals by a qualified appraiser and, if not, whether WT Art’s failure to obtain qualified appraisals was excused by the statutory reasonable–cause exception.

As to the first question, the Tax Court determined that the appraisals at issue were not qualified appraisals because neither China Guardian nor any of the individuals involved with the preparation of the appraisals satisfied the requirements of a qualified appraiser under Sec. 170(f)(11)(E)(ii). The court noted that China Guardian was an entity, not an individual, as required under Sec. 170(f)(11)(E)(ii). Further, Wang Yannan, the individual who signed the appraisal, lacked the necessary education and experience in valuing ancient Chinese art, as required under Sec. 170(f)(11)(E)(ii)(I). The court also found no evidence that China Guardian or any of the individuals involved regularly performed appraisals for compensation as required under Sec. 170(f)(11)(E)(ii)(II), nor did they hold themselves out as appraisers, as required under Regs. Sec. 1.170A–13(c)(5)(i)(A).

Had the court stopped here, the taxpayer would not have been able to deduct any amount for his donation of millions of dollars worth of ancient Chinese art to the Met. The taxpayer argued, however, that the qualified–appraisal requirement should be waived based on the reasonable–cause exception available under Sec. 170(f)(11)(A)(ii)(II). That exception provides that a deduction may still be available if the failure to obtain and attach a qualified appraisal was due to reasonable cause and not willful neglect. Reasonable cause is generally defined as requiring the exercise of ordinary business care and prudence, a determination that is made on a case–by–case basis (Neonatology Assocs., P.A., 115 T.C. 43, 98 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002); see also Regs. Sec. 1.6664–4).

The Tax Court noted several factors indicating that Tang had in fact exercised ordinary business care and prudence when obtaining appraisals from China Guardian, including that:

• China Guardian was recommended to him by an expert in Chinese art;
• Descriptive narratives of the art and suggestions of possible comparable sales were provided to China Guardian and prepared by the Met’s curator of Chinese art, who had extensive credentials and experience in Chinese art;
• During a prior IRS examination where Tang used backup appraisals from China Guardian, the IRS did not challenge China Guardian’s status as a qualified appraiser; and
• During that prior examination, Tang reached a favorable settlement with the IRS, which he attributed to China Guardian’s backup appraisals.

The court therefore concluded that WT Art was entitled to a deduction for the charitable contributions to the Met, based not on the China Guardian appraisals but on the actual FMV of the paintings donated.

Of the five paintings at issue in the case, the taxpayer and the IRS agreed that the aggregate FMV of four of the paintings was $41.5 million, versus the $47.92 million claimed by the taxpayer. Though the IRS attempted to impose a 20% accuracy penalty for the overvaluation, the court held that the same reasonable cause that excused the lack of qualified appraisals also excused the penalty. With respect to the final painting at issue, however, the claimed FMV was $26 million, more than twice the $12 million FMV determined by the court. Because the applicable 40% gross valuation misstatement penalty is not subject to a reasonable–cause exception, that penalty was sustained against the taxpayer, in addition to the disallowance of $14 million in charitable contribution deductions attributable to that painting.

WT Art is an important reminder of the strict substantiation requirements for noncash charitable contributions such as art and collectibles. Tax practitioners should carefully review and apply Sec. 170, the accompanying regulations, and the instructions to Form 8283 and ensure that clients comply with all applicable recordkeeping, valuation, and substantiation requirements. Failure to do so may result in the disallowance of the charitable contribution deduction at issue and expose the taxpayer to increased taxable income, interest, and significant penalties.

Contributors

Melissa Wiley, Esq., is a partner, and Destiny Reese, Esq., is an associate, both with Kostelanetz LLP in Washington, DC, and Atlanta, respectively. Wiley is also immediate past chair of the AICPA IRS Advocacy & Relations Committee. For more information about this column, contact thetaxadviser@aicpa.org.